The Australian Taxation Office (ATO) has announced that it is seeking the ability to report tax related debts of businesses to Credit Reporting Bureaus. This measure will apply to businesses with an Australian Business Number (ABN) and a tax debt of more than $10,000 that is at least 90 days overdue.

Initially proposed to apply from 1 July 2017, the measure is not yet law and is subject to parliamentary process and public consultation as to the specific circumstances and exceptions.

ATO under pressure to collect rising tax debts

The ATO's latest annual report shows the total level of collectable debt at 30 June, 2016 was $19.2 billion with small business accounting for a sizeable 65.2% of this. The measure is a strategic move by the ATO to recover escalating tax debts.

Currently, the consequences for failing to pay tax debts include penalties and general interest charges. As a result, some businesses give less importance to their tax debt than to the payment of other debts. The ATO anticipates this new approach will help to change that behaviour.

What do these new ATO debt collection powers mean?

Under this new measure, the ATO will have the power to report business tax debts over $10,000 to credit reporting agencies. The ATO has indicated that it will only use this power if a business has not effectively engaged with them to manage their tax debt. “Effective engagement’ is still to be defined but we expect this will mean businesses that have committed to a payment plan, or those that are in dispute over their liability.

The ATO has also indicated that it will provide reasonable notice to the taxpayer of its intention to disclose information to a credit reporting agency.

If the tax debt is listed on your credit report it will have a significant impact on your business and could make it difficult to access funding from banks and other lenders. Other businesses might also refuse to extend credit and the ability to obtain trade accounts with suppliers could also be impacted. Once the debt is on your credit file, paying the debt will not remove the default - it will still stay on your file for 5 years.

What should you do if you have a tax debt with the ATO?

If you have a tax debt which you are unable to pay in full we recommend early engagement with the ATO to address payment options. As your tax agent, Marsh & Partners are able to assist with this and negotiate a solution on your behalf.

In addition, the ATO advises businesses with a tax debt take the following steps to address it:

Ensure all accounting entries are up to date;

Ensure all BAS and IAS are lodged by the due dates;

If you have an overdue debt with the ATO, contact them immediately to discuss a payment plan;

If a tax debt is in dispute, communicate with the ATO to resolve the dispute.